Bet on U.S. Pays Off for Germany’s Carmakers

Image

Volkswagen has invested $4 billion in the United States since 2008, building a factory in Chattanooga, Tennessee, that began churning out Passat sedans in 2011.CreditCreditErik S. Lesser/European Pressphoto Agency

It was only a few years ago that some economists were arguing that Europe was “decoupling” from its long dependence on trade with the United States and predicting that the Continent’s future lay with the so-called tiger economies of Asia.

German carmakers, at least, had a different vision of the future.

The recovery in the United States auto market, which produced big earnings growth at Chrysler and Ford in their fourth quarters, has also been a boon for Germany’s big three — Daimler, BMW and Volkswagen.

The double-digit increases in their American sales last year reflected an overall surge in demand by American buyers for European and, above all, German products. Well-designed vehicles and machinery, so coveted a Germany specialty that they can often fetch premium prices, were by far the biggest categories of European exports to the United States.

As a result, overall German exports to America rose 24 percent in October from a year earlier, outpacing the 18 percent growth for euro zone exports to the United States.

In many ways, the success of the German carmakers has let them invest to produce further success in the American market. The German companies are cashing in on years of commitment to the United States, which remained an important market for them even as the global auto industry trained its sights on China.

Volkswagen, for example, has invested $4 billion in the United States since 2008, building a factory in Chattanooga, Tenn., that began churning out Passat sedans in 2011.

“Five years ago, we reset the clock here in America,” Martin Winterkorn, the chief executive of Volkswagen, said in Detroit last month. “The Passat was made in America for America.”

BMW and Daimler’s Mercedes-Benz unit have been making sport-utility vehicles and other autos in America since the 1990s: BMW in Spartanburg, S.C., and Mercedes in Tuscaloosa, Ala.

That presence put them in position to take advantage of the revival of the American market.

Nearly a third of the vehicles that BMW sells in America are built in that country, according to LMC Automotive, a research firm in Troy, Mich. Mercedes and VW both produce about a quarter of what they sell in the United States in local factories.

Image

Volkswagen has invested $4 billion in the United States since 2008, with some of it on the construction of its Chattanooga plant.CreditErik S. Lesser/European Pressphoto Agency

BMW and Mercedes have also expanded their appeal in the United States by moving carefully into more affordable parts of the market. Mercedes, for example, sells an entry-level Mercedes sedan for less than $30,000.

All of that has contributed to a sales surge. BMW vehicle sales in the United States rose 14 percent last year, including the Mini brand; sales of Daimler’s Mercedes and Smart brands increased more than 15 percent; and Volkswagen’s sales soared 34 percent, including Audi brand cars.

For Mercedes and VW, those were better growth rates than in China, and they helped to offset slower sales there.

The German automakers’ strong financial results contrast with those of European rivals like Renault and PSA Peugeot Citroën, which abandoned the United States market decades ago. Now the French carmakers are short of ways to counterbalance the stricken European market. It is probably too late for them to re-enter the United States, even if they could afford the cost of re-establishing a dealership network.

Mercedes and VW are so well placed in the United States that they even did a little strutting during the televised Super Bowl football championship on Sunday, showing splashy commercials.

In the Mercedes spot, the actor Willem Dafoe, playing the devil, offers a young man a new CLA sedan in exchange for his soul. After a fantasy sequence in which the young man cuddles with the model Kate Upton, dances alongside Usher and overtakes Formula One cars on a racetrack, he sees a billboard advertising the CLA for $29,900. He realizes he can afford one without the devil’s help.

The euro zone recession would clearly be much worse than it is without the income that European companies are bringing in from the United States. While Germany has been the main beneficiary, accounting for 40 percent of euro zone exports to the United States, countries including France, Italy and Spain also recorded big gains in sales in America of products that span categories from chemicals to wine.

Britain, which is in the European Union but not the euro zone, expanded exports to America by 11 percent in October from a month earlier. That made Britain second to Germany in total sales of goods to the United States that month, with about 4 billion euros, or $5.4 billion, in October versus 8 billion euros for Germany, according to official figures.

The renaissance of United States demand is a big shift from a few years ago, when all the action seemed to be in Asia. The realignment has prompted some companies and governments to re-examine their priorities, and it helps explain why European Union leaders like Angela Merkel of Germany and David Cameron of Britain have been pushing hard for a new trade agreement between Europe and the United States. A deal would eliminate tariffs and harmonize regulatory requirements for cars and other products.

America has always been important to German manufacturers.

But the recent pickup in United States demand for factory equipment, which is closely linked to the auto industry as well as natural gas exploration and chemical production, came as a surprise.

After past economic downturns, United States demand for machinery never fully recovered to precrisis levels, said Peter Leibinger, vice chairman of Trumpf, a company based in Ditzingen, Germany, that makes machines used to cut and form sheet metal.

Image

“It was always a step down,” Mr. Leibinger said by telephone from Farmington, Conn., where a Trumpf factory employs about 700 people.

But this time it was different. After an initial plunge following the collapse of Lehman Brothers in 2008, Trumpf’s American sales have soared, rising about 90 percent to 274 million euros from June 2010 to June 2012.

The German carmakers are benefiting from a general recovery in the premium end of the American market, as well as from more aggressive financing incentives. But they are also in position to meet demand for less expensive models, as with the BMW X3 SUV, which starts at about $39,000.

Volkswagen, which only a few years ago flirted with irrelevance in the United States, has come back after a campaign that began in 2008 and included a high-tech makeover of the buildings that house Audi dealerships as well as efforts to improve service.

The Passat made in Tennessee is less costly and simpler than the European version. It has helped VW compete better in the United States with the Toyota Camry and Honda Accord.

“The VW brand has historically had more of a cult following,” said Jeff Schuster, senior vice president at LMC Automotive. “The new Passat is larger and more in line with midsize cars in the U.S. It has more mass appeal than cult appeal.”

VW has also invested heavily in marketing in the United States. The company’s Super Bowl spot portrayed an office worker from Minnesota speaking in a Jamaican patois and exhorting his dour co-drones to “turn the frown the other way around.” Then he took them for a ride in a red Beetle. The slogan is: “Get In. Get Happy.” (Some commentators said the commercial was culturally insensitive, but Jamaica’s tourism minister liked it, The Associated Press reported.)

Mr. Schuster said he thought VW sales would continue to grow this year, though perhaps not as fast. In January, sales of the German brands rose less than the American car market over all, although it was not clear if the relatively poor performance was a trend or an anomaly. Over all, vehicle sales in the United States were up 14 percent in January from a year earlier. Mercedes sales rose 11 percent over that period, VW and Audi unit sales rose 7 percent, and BMW and Mini sales were up only 2 percent.

BMW sales were held back by a shortage of products because of heavy demand last year, a spokesman said, adding that the company expected 2013 to be a good year in the United States.

Despite all the talk about Asia in recent years, there is palpable relief among German exporters that the United States is once again a growth market. America remains an easier place for European companies to do business than most emerging markets.

“To us, it’s a market like Germany,” said Mr. Leibinger of Trumpf. “We consider China a huge opportunity, but we do see the risks there.”

Bill Vlasic contributed reporting from Detroit.

A version of this article appears in print on , on Page B1 of the New York edition with the headline: Bet on U.S. Pays Off for Germany’s Carmakers. Order Reprints | Today’s Paper | Subscribe